US Dow expects ethane to be long into 2020

Even with exports and new crackers coming online, forecasts call for a surplus of 150,000 bbl/day four years from now. Above, a unit at Dow’s complex in Freeport, Texas. The complex produces ethylene and polyethylene among many other chemicals. (Dow Chemical)

Focus article by Al Greenwood

HOUSTON (ICIS)–Dow Chemical expects ethane to remain long, even as the US exports it and starts up new crackers, the US major said on Thursday.

Dow’s forecasts show ethane demand rising from about 1.25m bbl/day in 2016 to roughly 2.1m bbl/day in 2020. Supply, meanwhile, will rise from about 1.75m bbl/day to about 2.25m bbl/day in 2020.

By 2020, the US should have a surplus of about 150,000 bbl/day. That is less than the current surplus, which exceeds 500,000 bbl/day.

Dow is not alone in expecting the US to maintain its surplus. Enterprise Products, the biggest supplier of natural gas liquids (NGLs) in the US, also expects the country will have ample supplies of ethane.

Dow expectations for ethane are based in part on propane. Propane typically caps ethane prices, and Dow expects that to continue because supplies should remain high.

US propane supplies have grown year on year and production remains well above consumption.

“We see propane as long, as far as the eye could see,” said CEO Andrew Liveris. He made his comments during an earnings conference call.

The US has maintained its surplus even as it has become the world’s largest exporter of propane.

Dow is also basing its ethane forecast on natural gas, according to Jim Fitterling, chief operating officer and president.

“There is more gas coming on every day, not just in the US, but in the Middle East, Australia,” he said. “It’s putting pressure on these gas prices, and that’s going to help us out.”

Dow’s forecast also rests on rising production of associated gas, another important source for ethane and other natural gas liquids (NGLs). Such gas is associated with oil production, so Dow’s forecast would also assume an increase in US crude production.

In fact, many expect oil prices to increase in the upcoming years. Fitch Ratings expects crude prices to reach $45/bbl in 2017 and $55/bbl in 2018. Its long-range forecast is $65/bbl.

If crude is at $40-50/bbl, then most US producers will break even on a cash basis, although these levels would not cover sunk costs for some companies, Fitch said.

Dow’s outlook for ethane comes amid expectations that supplies could tighten because of new demand from crackers and export terminals.

Enterprise Products has said that while the US overall should have plenty of ethane, the Gulf Coast could become short, requiring shipments from other parts of the country. Fees attached to such shipments could pressure ethane prices higher.

Still, some speculation indicates a rapid tightening of ethane supplies and a corresponding spike in prices, according to Hassan Ahmed, head of research at Alembic Global Advisors.

He that said some are throwing around ethane estimates of 50-60 cents/gal. Alembic’s own forecast calls for 35 cents/gal by 2018.

Current US ethane prices are below 20 cents/gal, and they have not been above 50 cents/gal since 2012, according to ICIS. Moreover, prices have been below 20 cents/gal even though Enterprise Products and Sunoco Logistics have started exporting ethane from their new terminals.

Ethane is used to make ethylene, which is the feedstock for polyethylene (PE).

INSET IMAGE: Dow Chemical’s east end office in Midland, Michigan. (Dow Chemical)